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Faux meat looks like the next market bubble

The growing trend for meatless burgers is turning in a frenzy in the US, with share prices of sector players soaring. Is a bubble brewing in the sector?

byGarry White

in Features

13.05.2019

Forget cannabis and cryptocurrency, these are yesterday’s manias. There’s a new sector in town that is causing share prices to explode at the mere mention of its name – and there is a significant danger of another market bubble brewing. Somewhat surprisingly, the latest speculative frenzy is all about fake meat.

“Plant-based meat” group Beyond Meat is the best-performing IPO so far in 2019 – by a long way. Indeed, its first day of dealing was better than any US IPO since 2008 and the shares are now up almost 200pc in just eight trading days. Beyond Meat’s main product is its pea-protein burger, which uses beetroot juice to make it appear “bloody”. It is being rolled out in various burger chains in the US and it is also available at Amazon’s Whole Foods. But is a valuation of $4.3bn realistic for a company that makes fake burgers from plants?

Shares prices rocket

Just the mere mention of vegan burgers has been setting share prices alight in the US. On Wednesday last week, a lowly-valued US restaurant chain called Chanticleer Holdings, which owns the Hooters chain of adult-themed restaurants amongst others, saw its shares jump by 94pc in intraday trading after announcing a partnership with Beyond Meat. Interestingly, this is the largest single-day gain in the restaurant group’s share price since the company said it would use blockchain-related technology for its customer rewards program.

There’s no doubt that there is a trend toward people eating more vegan food – even if they still eat meat. There are three main drivers for people moving to a plant-based diet – animal welfare, health and the environment. The health benefits of a vegan diet have also been cited as lower blood pressure and cholesterol and reduced rates of heart disease. Meat and dairy farming is also regarded by some as putting an excessive burden on the environment – from crops and water required to feed the animals, to the transport and other processes involved from farm to fork.

So, it appears that the consumer excitement around these products is real. On Monday last week, John Cappasola, chief executive of Del Taco, told investors that the fast-food group had seen an increase in customer spending and traffic following the launch of its vegan Beyond Meat taco 11 days earlier. “We've had stories ... of folks talking about having never been to Del Taco before and this giving them a reason to check out the brand," Mr Cappasola said. “Since the April 25 launch of Beyond Tacos, our check and transaction same-store sales trends have improved significantly,” he added.

Billions from meat-free burgers

One US analyst has calculated that the market for plant-based meat could be worth $41bn a year in the US alone. After all, Americans are said to eat about 50 billion burgers a year, an average of three per person per week and, if just a fraction of this market can be captured, there will be significant profits to be made. If Beyond Meat could secure a 5pc share of that market, it would imply sales of $2bn in 2028, compared with $87.9m in 2018, the analyst calculated.

The two largest burger chains in the world – McDonalds and Burger King – have also come on board. McDonalds is testing the sale of a vegan burger, the Big Vegan TS, in Germany, one of its five leading international markets. The meatless patty is being made by Swiss giant Nestlé for McDonalds and the trial started last month. However, from an investor’s point of view, perhaps the most interesting thing is what is happening at Burger King.

Have it your way

A company called Impossible Foods has now officially tied up with Burger King after a trial run of its plant-based burger in St Louis went “exceedingly well”. Impossible Foods is expected to IPO in New York later this year, so this news is a boon for management ahead of the floatation. Just this week, Burger King announced that, by the end of 2019, the Impossible Whopper will be available in all 7,200 of its US restaurants. “People on my team who know the Whopper inside and out, they try it and they struggle to differentiate which one is which,” Burger King’s chief marketing officer, Fernando Machado, said. Impossible’s burgers are also selling so fast there is already a shortage of them in America as the company can’t produce them fast enough. “[Impossible Foods] recognizes the inconvenience that this shortage is causing and sincerely apologizes to all customers, particularly those who have come to depend on the additional foot traffic and revenue that the Impossible Burger has generated,” the company said last week.

Of course, the success of plant-based meat companies has not been un-noticed by producers of traditional meat patties. Tyson Foods, the world second largest meat processor, said on Monday that it will introduce a meatless protein product in the coming months and Kelloggs has said it plans to focus more on its meat-free product range. However, the quality of the product really matters. Veggie burgers have existed for decades but the investment excitement is around these highly engineered products that aim and claim to taste as good as meat.

But investors need to be careful they are not investing in a speculative frenzy that will eventually unwind. After all, almost 7pc of Beyond Meat’s shares are now on loan to short sellers, according to Bloomberg data. After this sizzling start, reality may set in soon.

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